The Harvard Endowment Fund aims to finance the ongoing operations at Harvard University in Boston. Its goal isn’t to deliver outrageously good returns. Slightly better than average will do. In fiscal 2022 (June year-end), it reported a return of -1.8%. However, thanks to the gains in 2021, it returned more than $2.1 billion to the university’s operating budget, accounting for 36% of Harvard’s 2022 revenue.
As of June 30, 2022, the fund was worth $50.9 billion, invested across various asset classes, including public equities.
If you’re interested in investing like Harvard, here are three stocks to buy from the endowment’s current holdings. You might not hit a home run, but you’ll do more than acceptable over time.
Alphabet (GOOG, GOOGL)
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The top holding as of March 31 of the Harvard Management Company (HMC) — the internal investment firm responsible for managing the university’s endowment fund — was Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), the parent of Google. HMC held 2.41 million shares in the holding company, accounting for more than 26% of its $952 million in U.S. equities.
Harvard’s not the only investor that’s a fan of the company. Bill Ackman’s Pershing Square Capital Management invested in its shares earlier this year after fears about artificial intelligence (AI) knocked its stock down to the point where he couldn’t resist.
In early May, Pershing acknowledged that it owned 10.3 million Class A and Class C shares combined, almost 5x the endowment’s exposure. Ackman is paid to be aggressive; HMC is paid to be the opposite.
Pershing Square analyst Bharath Alamanda had this to say about Alphabet:
“‘Google’s current valuation represents a fantastic opportunity to own one of the most advantaged scale players in AI with an unmatched business model and a very long runway for growth,” MarketWatch reported the analyst’s comments from Pershing Square’s earnings call on May 24.
Ackman reportedly paid at most $94.50 a share for its stake. GOOGL now trades for nearly $121.
Light & Wonder (LNW)
At first, I scratched my head when I saw that Light & Wonder (NASDAQ:LNW) was the endowment’s third largest holding, accounting for 16.9% of its portfolio.
Light & Wonder is the newish name of Scientific Games. It changed names in April 2022. The company changed its name to reflect its focus on becoming the world’s leading cross-platform global game company.
As part of its transformation, Light & Wonder sold its lottery business to Brookfield Business Partners (NYSE:BBU) in April 2022 for $5.8 billion, generating $5.0 billion in after-tax cash proceeds.
As part of its cross-platform strategy, Light & Wonder announced on May 18 that it would pay $442 million to acquire the 17% of SciPlay (NASDAQ:SCPL) that it didn’t already own. Light & Wonder spun off the social casino developer in 2019. SciPlay produces free-to-play mobile casino products. It makes an excellent addition to its growth strategy for iGaming.
Together, the two businesses generated $605 million in Q1 2023. So it’s easy to see what the endowment likes about LNW.
Grab Holdings (GRAB)
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Grab Holdings (NASDAQ:GRAB) is the endowment’s fourth-largest holding, accounting for 4.1% of its portfolio. Grab is considered a financial services stock because its superapp does many things, including ride-hailing, deliveries, and digital finances.
On May 18, Grab reported its Q1 2023 results. They included a 130% increase in revenue to $525 million with a $66 million EBITDA loss. The company’s Deliveries segment accounted for 52% of its first-quarter revenues.
“With five sequential quarters of Adjusted EBITDA improvements, we remain on track on our path to profitability and to achieve Group Adjusted EBITDA breakeven in the fourth quarter of this year,” said CEO Anthony Tan.
For 2023, it expects 57% YOY revenue growth to $2.25 billion with a $215 million EBITDA loss. It expects EBITDA to break even in Q4 2023.
Twenty-one of the 27 analysts covering GRAB stock rate it a Buy with a median target price of $4.10, 34% higher than its current share price.
The latest estimate for the global ride-hailing market is $69 billion in 2022. By 2030, it’s expected to hit $206 billion.
According to The Harvard Crimson, the Harvard newspaper, the endowment grew its position by 40% in Q4 2022.
“Grab is akin to the Uber of Southeast Asia, outside of China. It operates in a big market, but the company is currently not profitable. It has $6.5 billion in cash on its balance sheet so it should be able to fund the near-term losses until the company becomes profitable,” the paper reported Rutger Business School finance professor John M. Longo in February.
Patient money usually wins.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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